Chapter 3: First steps once the probate estate is open
Once your petition for probate has been granted, the court will sign the Order For Probate and your Letters Testamentary or Letters of Administration. You need both before you can move forward administering the probate estate.
The Order For Probate tells the world either a will has been admitted to probate or that there is no will.
The Letters Testamentary or Letters of Administration are the legal documents you use to show third parties, like financial institutions, that you are the legal representative of the estate. In other words, you have the legal authority to act on behalf of the estate.
Can you open an estate account before probate?
The short answer is no. No bank will allow you to open an estate account until you give them a certified copy of your letters and the employer identification number (EIN) for the estate.
You can apply for an EIN at any time after death by completing and submitting IRS Form SS-4. However, it makes no sense to do this on your own before the estate is open. Instead, this is a good time to hire an accountant to get the EIN for you and to begin a working relationship. We’ve seen clients get sued by the heirs or beneficiaries for failing to file tax returns and incurring penalties and interest.
Once the estate is open, two simultaneous processes are going to take place. First, the executor or administrator will gather the estate’s assets. Second, known creditors and unknown potential creditors must be addressed. Gathering assets is addressed immediately below. Creditor claims are addressed in Chapter 4.
Gathering estate assets
It is critically important the executor or administrator get possession, control, and/or title to estate assets after the order and letters are filed by the court. Common assets going through probate include:
Each of these types of assets can present unique challenges. We’ll dive into each of the assets below, their challenges, and how to solve these issues.
The one challenge presented by bank accounts is locating them all. If the deceased person was secretive or just didn’t communicate well with the person who became executor or administrator, then the executor or administrator may not know about all the accounts.
So how can you get around this? By reviewing past income tax returns and collecting mail.
The income tax returns should show you the source of all interest income. In other words, it will show you the bank’s name. From there, you can go to any bank branch with a certified copy of your letters to collect the account.
You’ll also want to keep collecting the deceased person’s mail because you may receive bank statements. Once a year, at minimum, you will receive tax reporting documents from the bank.
Both tax returns and bank statements will tell you to highlight all the accounts where you can go and collect money.
Safe deposit boxes
If you believe there is a safe deposit box, then examine past bank statements or canceled checks. One of these should show you payment for the safe deposit box. You will then know which bank to contact.
To get into the box you will need the key. If you don’t have it, then you will have to make arrangements with the bank to have the lock drilled. Once that is done, you can collect the contents of the safe deposit box.
Similar to bank accounts, review past income tax returns and collect the deceased person’s mail. If you have access to their email, check that as well. One of these methods will turn up a statement that identifies what is owned, an account number, and who has possession of it.
For individual stocks, transfer agents can be a good source of information. BNY Mellon and Computershare are two of the largest.
Once you have that information, you will need to contact the institution. Be prepared to provide a copy of the death certificate, a certified copy of your letters, and to fill out their paperwork to transfer the mutual funds and/or securities.
Hopefully, your deceased loved one kept their life insurance policy in their records. If not, then look for canceled checks or electronic payments for the policy. Most insurance companies are quite helpful even without a policy number once you present them with your letters and a death certificate.
If you can’t find any identifying information for the life insurance policy but are convinced it exists, there are some services that can help you search for the policy. Be warned, these services don’t have complete information. That means even if the policy exists, they may not find it. If the life insurance policy has a face value below $50,000 then it very likely won’t be found by these services.
The most common problem with cars is locating the title (i.e. pink slip.) If you can’t find the title then you can apply for a replacement at the DMV. The form is available online.
Real estate truly has its own unique challenges. A lost deed isn’t one of them. Deeds can be purchased from the county recorder’s office. Let’s go through the real challenges with real estate that executors will face.
Determining Occupancy - no matter what type of real estate is owned by the estate, you have to first find out if it is occupied. If it is occupied, then you need to locate the rental agreement and collect rent as it comes due. If a squatter is on the property, then you will need to go through an eviction process.
Survey the Property for Problems - if there is any type of structure on the land, then the executor needs to walk through it and around the outside looking for problems. You don’t need any sort of expert to do this. Simply use your common sense. Things like holes in the wall will need to be repaired. Signs of water damage may mean you need a plumber to fix a problem and check for mold. A badly frayed carpet needs to be replaced.
Maintenance - you need to come up with a maintenance plan that is appropriate for the property. For example, a single-family home needs the lawn mowed and the pool skimmed. An apartment building may require a much more extensive plan.
Insurance - every type of building must be insured. It may be required as a condition to a mortgage. Even if the property is owned outright, real estate is always a potential liability magnet. People are entering and exiting the building all the time. If anyone is injured then they are going to turn to the estate to be compensated. Having the right insurance in place provides for legal defense and a source of money if the estate is truly responsible for someone’s injury.
Environmental problems - these are very rare but should be examined if the estate owns an industrial site or gas station. If there is an environmental problem, then there is a good chance you must deal with the federal government. You may find yourself being held personally liable if the issue isn’t handled correctly.
Probate estate inventory and appraisal
The purpose for gathering all the assets is twofold. First, to secure those assets for use during probate and distribution at the end of probate. Second, because the executor or administrator must provide a list of all estate assets and their values on the day your loved one died. This list is called an inventory and appraisal.
The executor or administrator has four months from issuance of letters to file a completed inventory and appraisal with the probate court.
The Inventory and Appraisal (I&A) effectively comes in two parts: Attachment 1 and Attachment 2.
Attachment 1 is the assets appraised by the executor or administrator. They can only be cash and cash equivalents. Cash equivalents include undeposited checks and money market funds. Cash equivalents do not include rare, collectible, or foreign currency.
Attachment 2 contains assets appraised by the probate referee. The probate referee is a neutral third party appointed by the probate court to provide date of death values for all noncash assets in the probate estate.
Common items on Attachment 2 include:
Securities (i.e. stocks, bonds, mutual funds, ETFs, etc.)
Tangible personal property
Additional inventories may be needed later. An inventory and appraisal - reappraisal for sale will be necessary if real estate is sold one year or more after the deceased’s date of death. A supplemental inventory will be needed if assets belonging to the deceased come into the probate estate after the date of death.